What are the Interests Rates on Home Loans in Singapore?

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bank interest rate

When applying for a home loan, it’s a good idea to do some research first. In fact, you should do a lot of research if you don’t want to be stuck with a bad deal when you could easily have gotten a better deal. There are two ways you can get a home loan in Singapore:  a HDB home loan or bank loan. Which is better? The answer depends on your requirements.

HDB home loan interest rate

The home loan offered by HDB comes with a concessionary interest rate that is 0.1% above the prevailing CPF interest rate . Currently, the CPF interest rate is 2.5% for Ordinary Account (OA) monies. This means the HDB mortgage interest rate is 2.6%. You have to look at the CPF interest rate to find out the prevailing HDB home interest rate.

The HDB home loan comes with some conditions. You can’t get an HDB home loan if your household income exceeds $10,000. It is not available to permanent residents and others who are not Singapore citizens. It is not available to people who already own at least one residential or commercial property. The maximum loan repayment period is 25 years.

You will learn in the following paragraphs that bank loan interest rates are usually cheaper than HDB home loan interest rates. So why take a HDB loan? It applies to HDB apartments, which are cheaper. Repayment amounts are more consistent. Loan-to-Value (LTV) ratio is up to 90%. The LTV ratio of bank loans is lower, at 80%. You can pay using your CPF. There are no penalties for early repayment.

Bank home loan interest rates

The interest rates of home loans offered by banks vary from one bank to another. Currently, the fixed interest rates for private residential properties range from 1.38% to 1.68%, SIBOR/SOR-pegged interest rates range from 0.17% to 1%, and variable interest rates range from 1.20% to 2.10%. (Loan rates are subjected to changes.) As you can see, bank home loan interest rates are lower than HDB home loan interest rates.

A fixed-rate home loan is a fully amortising home loan in where the interest rate remains the same throughout the term of the loan. One thing you have to keep in mind that fixed rate is not really fixed and typically lasts no more than 5 years. Once the fixed period is over, SIBOR/SOR-pegged rates usually kick in. In contrast, the interest rate is adjusted periodically in accordance with the market conditions in a variable-rate loan.

The most popular type of bank home loan is the loan with the SIBOR/SOR-pegged interest rate.  SIBOR stands for Singapore Interbank Offered Rate, a reference rate based on the interest rates used by Singapore banks when lending unsecured funds to each other.

SOR is the short form for Swap Offer Rate. It is the effective cost of borrowing the Singapore dollar synthetically by borrowing the US dollar for the same maturity period and then swapping out the US dollar for the Singapore dollar. Since foreign currency exchange is involved, SOR rates are often much more volatile than SIBOR rates.

If you are in the market for a home loan, make sure to check out sites which compare Singapore mortgage loan rates to get a grasp on the situation before talking to any lender. It’s always a good idea to know a thing or two about prevailing interest rates.

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